Today 26 May 2019, Sunday - Last updated at 1 January 1970

News 5 March 2019, at 08:52

The Russian Private Sector Eats Its Own

Marime Font

 The arrest of an American businessman in Russia echoes the Khodorkovsky and Browder episodes from the early 2000s.

Having written about countless high-profile arrests in Moscow in the past—whether of an acting federal minister, a winner of European film festivals, an acting senator, two billionaire brothers, or a governor—I thought that nothing could surprise me. I was wrong. Last week, Russia exceeded my expectations again. Michael Calvey, an American investor and citizen, and founder of the major private equity fund Baring Vostok, was arrested by the Russian security services, the FSB. Five other Baring Vostok managers were arrested as well.

But maybe it shouldn’t have surprised me. After all, the Calvey case was in many ways all too familiar. It was reminiscent of Russia in the early 2000s during the early phase of Vladimir Putin’s rule. They say history is cyclical. Or maybe, as Marx had it, it repeats, first as a tragedy, second as farce. In Russia’s case, perhaps it is more a downward spiral: when events do repeat, they only get worse.

Over 25 years of operating in Russia, Baring Vostok had invested over $2 billion in 55 Russian companies, all in the private sector. Ironically, the arrest of its top executive took place right before the opening of the Russian Investment Forum in Sochi on February 13. Three days later, a Moscow court put Calvey in jail for two months to await trial.

Officially, Calvey is charged with perpetrating a multi-million dollar fraud. In reality, this means he had made an enemy of someone with connections. If in 1990s economic rivals were targeted by hitmen, by the 2000s that job had fallen to the siloviki. And rather than assassinations, the preferred weapon for stripping rivals of their assets became criminal prosecutions. Some insiders say it costs as little $50,000 these days to order a criminal case opened against a competitor.

The details of the Calvey case—and they are worth diving into—suggest that paid-for justice was at play. The key relationship is between Calvey and one Artem Avetisyan, a member of the Russian Strategic Initiatives Agency, a nonprofit governmental organization with Vladimir Putin as chairman of its board. The fight is officially over the valuation of assets used to settle debts between Calvey’s Baring Vostok and a bank co-owned by Calvey and Avetisyan. In reality, it is a struggle over control over the bank itself—Vostochny—which is currently the 32nd largest bank in Russia if measured by assets.

Beyond having links to Putin himself, Artem Avetisyan is apparently also a good friend of Dmitry Patrushev, the son of Russian Security Council Secretary Nikolai Patrushev, and is said to have done business with Vladislav Surkov, the sons of the former head of the Presidential Administration Alexandr Voloshin, and the son of the CEO of Sberbank German Gref. With these kinds of connections, having the siloviki intervene on your behalf can’t have been too difficult.

Unlike his colleagues, Michael Calvey was not immediately put in jail after his arrest. In his initial court appearance, he professed to “believe in the Russian justice system”—a period of hope that lasted for three days, before the court decided to jail him. It’s only then that a public outcry from the business community began.

Audit Chamber head Alexey Kudrin pulled together the courage for a tweet: “Obviously, the President’s directive not to arrest people on economic charges is being violated. I consider this particular situation an emergency to the economy.” Surely there must be some mistake here, the former Finance Minister protested—without daring to address Russia’s President directly.

It took Arkady Volozh, the billionaire founder of the Russian search engine Yandex, two days after the arrest to speak up in defense of Calvey. Baring Vostok invested in Yandex back in 2000, buying 35 percent of its shares for $5.28 million. When it sold its share, Baring Vostok made more than $1 billion off the deal. Volozh, who has suffered from a hostile intervention by Sberbank and Putin’s crony Alisher Usmanov, said that Baring Vostok “has always been the standard of decency and law obedience for the market.”

It also took two days for Russia’s Presidential Commissioner for Entrepreneurs’ Rights, the billionaire Boris Titov, to publish an op-ed in Vedomosti with the bold title “Why Michael Calvey Should Not be in Jail.” The article’s content, alas, was not so bold. Titov wrote about Calvey as if this was the first time a businessman has been put in jail on such trumped-up charges—as if the Yukos case and Mikhail Khodorkovsky’s ten years in prison had been memory-holed into oblivion.1 He wrote, too, as if the charges against Calvey were a genuine mistake by the prosecutor’s office rather than a paid-for operation conducted by the siloviki—as if these same siloviki were not hounding American-born investor Bill Browder up to the present day.

Khodorkovsky and Browder, both victims in the early 2000s, were admittedly slightly different cases. They both were harassed by the government in the interest of the government—Khodorkovsky for his pretensions to political power (which endangered Vladimir Putin) and Browder for connecting the dots between a group of federal officials that stole money from the Russian budget (in the interest of Vladimir Putin).

And yet when Khodorkovsky and later Browder were thrown under the bus, those who could have spoken up preferred not to, probably hoping that both cases were so extraordinary that they would not happen again. But of course, things have only gotten worse since then. Whether it is Igor Sechin ordering a criminal case against Vladimir Yevtushenkov over the oil company Bashneft, or the case of Minister Ulyukaev, countless targeted prosecutions have been initiated by interested parties with ties to the siloviki.

Calvey should have been no surprise.

When Calvey was detained and his arrest was being decided in court, to me his initial release was surprising while his final arrest seemed quite natural. To everyone else, apparently, it was the opposite; it was more comforting to think that Calvey would not go to jail and would merely be placed under house arrest or have his travel restricted (seen as light punishment in Putin’s Russia). These same people think that if Calvey were to drop a lawsuit he has outstanding against Avetisyan in London, his case will be closed. Perhaps Calvey would have to give away some of his assets, too, these people say, and then everything else could go back to “normal”.

This, too, is deja vu. The movers and shakers in Russian high society are always one step behind the escalating brazenness of Putin’s government. The way they defended Michael Calvey clearly shows that they still hope that a “mistake” will be acknowledged and fixed when the Good Czar Putin hears about the outrageous Baring Vostok case.

But the Kremlin has made it very clear that there was no mistake. Commenting on the Calvey case, Putin’s Spokesman Dmitry Peskov said that “Putin and Calvey met a number of times,” that “the Kremlin closely watches the development of the case,” but that “it is a matter for law enforcement” and that the Kremlin won’t intervene. Peskov added that “this could happen in any country with any businessman,” before expressing hope that the Calvey case “won’t affect the investment climate in Russia.”

The truth is, Russia has long been on a trajectory to a place where the siloviki are free to do whatever they want and the Kremlin won’t stop them. As Russian analyst Vladimir Milov noted, Calvey himself was no naif, and his Baring Vostok had for years “worked well as loyal cogs in Putin’s machine,” validating the premise that Putin was some kind of pro-business modernizer rather than a mafia don. Still, Russia’s business elites pretend that this is not the world they live in, or hope that it won’t go much further.

But the idea that this won’t affect more people—whether they are Russians or Americans, investors or political opposition figures, ministers or film directors—is at best cynical, and at worst hopelessly naive.

1 Incidentally, the Calvey case is being reviewed by the same Basmanny Court in Moscow that sentenced Khodorkovsky and gave the world the term “Basmanny justice” as a shorthand for corrupt, politicized justice in Putin’s Russia.

Karina Orlova is the Washington correspondent for Echo of Moscow radio, and a contributing writer for The American Interest.
Published on: February 21, 2019

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